Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Shares of the ARK 21Shares Ethereum ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, 88685-88687 [2023-28193]
Download as PDF
<![CDATA[
Federal Register / Vol. 88, No. 245 / Friday, December 22, 2023 / Notices
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CboeBZX–2023–069 and should be
submitted on or before January 12, 2024.
Rebuttal comments should be submitted
by January 26, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–28192 Filed 12–21–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99196; File No. SR–
CboeBZX–2023–070]
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the ARK 21Shares
Ethereum ETF (‘‘Trust’’) under BZX
Rule 14.11(e)(4), Commodity-Based
Trust Shares. The proposed rule change
was published for comment in the
Federal Register on September 27,
2023.3
On September 27, 2023, pursuant to
Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 This order
institutes proceedings under Section
19(b)(2)(B) of the Act 6 to determine
whether to approve or disapprove the
proposed rule change.
I. Summary of the Proposal
As described in more detail in the
Notice,7 the Exchange proposes to list
and trade the Shares of the Trust under
BZX Rule 14.11(e)(4), which governs the
listing and trading of Commodity-Based
Trust Shares on the Exchange.
The investment objective of the Trust
will be to seek to track the performance
of ether, as measured by the
performance of the CME CF Ether-Dollar
Reference Rate—New York Variant
(‘‘Index’’), adjusted for the Trust’s
expenses and other liabilities.8 The
Trust’s assets will consist of ether held
by the Trust’s custodian on behalf of the
Trust.9 The Trust will value its Shares
daily based on the value of ether as
reflected by the Index.10 The
administrator of the Trust will
determine the net asset value (‘‘NAV’’)
of the Trust on each day that the
Exchange is open for regular trading, as
promptly as practicable after 4:00 p.m.
ET.11 In determining the Trust’s NAV,
the administrator values the ether held
2 17
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To List and Trade Shares
of the ARK 21Shares Ethereum ETF
Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares
ddrumheller on DSK120RN23PROD with NOTICES1
December 18, 2023.
On September 6, 2023, Cboe BZX
Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
30 17
1 15
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
VerDate Sep<11>2014
18:10 Dec 21, 2023
Jkt 262001
CFR 240.19b–4.
Securities Exchange Act Release No. 98467
(Sept. 21, 2023), 88 FR 66515 (‘‘Notice’’). The
Commission has received no comments on the
proposal.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 98565,
88 FR 68187 (Oct. 3, 2023). The Commission
designated December 26, 2023, as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See Notice, supra note 3.
8 See id. at 66518. 21Shares US LLC (‘‘Sponsor’’)
is the sponsor of the Trust. See id. at 66515.
9 See id. at 66515. The Trust generally does not
intend to hold cash or cash equivalents; however,
there may be situations where the Trust would
unexpectedly hold cash on a temporary basis. See
id. at 66515–16.
10 See id. at 66518.
11 See id. at 66519.
3 See
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88685
by the Trust based on the price set by
the Index as of 4:00 p.m. ET.12 When the
Trust sells or redeems its Shares, it will
do so in ‘‘in-kind’’ transactions with
authorized participants in blocks of
5,000 Shares.13
II. Proceedings To Determine Whether
To Approve or Disapprove SR–
CboeBZX–2023–070 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 14 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of proceedings is appropriate
at this time in view of the legal and
policy issues raised by the proposed
rule change, as discussed below.
Institution of proceedings does not
indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, as
described below, the Commission seeks
and encourages interested persons to
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,15 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act, which requires,
among other things, that the rules of a
national securities exchange be
‘‘designed to prevent fraudulent and
manipulative acts and practices’’ and
‘‘to protect investors and the public
interest.’’ 16
The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, which are set forth in the
Notice, in addition to any other
comments they may wish to submit
about the proposed rule change. In
particular, the Commission seeks
comment on the following questions
and asks commenters to submit data
where appropriate to support their
views:
1. Given the nature of the underlying
assets held by the Trust, has the
Exchange properly filed its proposal to
list and trade the Shares under BZX
Rule 14.11(e)(4), Commodity-Based
Trust Shares? 17
12 See
id.
id. at 66516.
14 15 U.S.C. 78s(b)(2)(B).
15 Id.
16 15 U.S.C. 78f(b)(5).
17 BZX Rule 14.11(e)(4)(C)(i) defines the term
‘‘Commodity-Based Trust Shares’’ as a security (a)
that is issued by a trust that holds a specified
13 See
E:\FR\FM\22DEN1.SGM
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22DEN1
88686
Federal Register / Vol. 88, No. 245 / Friday, December 22, 2023 / Notices
2. The Exchange raises substantially
similar arguments to support the listing
and trading of the Shares as those made
in proposals to list and trade spot
bitcoin exchange-traded products
(‘‘Bitcoin ETPs’’). Do commenters agree
that arguments to support the listing of
Bitcoin ETPs apply equally to the
Shares? Are there particular features
related to ether and its ecosystem,
including its proof of stake consensus
mechanism and concentration of control
or influence by a few individuals or
entities, that raise unique concerns
about ether’s susceptibility to fraud and
manipulation?
3. What are commenters’ views on
whether the proposed Trust and Shares
would be susceptible to manipulation?
What are commenters’ views generally
on whether the Exchange’s proposal is
designed to prevent fraudulent and
manipulative acts and practices? What
are commenters’ views generally with
respect to the liquidity and transparency
of the ether markets and the ether
markets’ susceptibility to manipulation?
4. Based on data and analysis
provided by the Exchange,18 do
commenters agree with the Exchange
that the Chicago Mercantile Exchange
(‘‘CME’’), on which CME ether futures
trade, represents a regulated market of
significant size related to spot ether? 19
What are commenters’ views on
whether there is a reasonable likelihood
that a person attempting to manipulate
the Shares would also have to trade on
the CME to manipulate the Shares? 20 Do
commenters agree with the Exchange
that trading in the Shares would not be
the predominant influence on prices in
the CME ether futures market? 21
5. The Exchange states that ether is
resistant to price manipulation and that
other means to prevent fraudulent and
manipulative acts and practices ‘‘exist
to justify dispensing with the requisite
surveillance sharing agreement’’ with a
regulated market of significant size
related to spot ether.22 In support, the
Exchange states, among other things,
that the geographically diverse and
continuous nature of ether trading make
it difficult and prohibitively costly to
manipulate the price of ether, and that
the fragmentation across ether
platforms, the relatively slow speed of
transactions, and the capital necessary
to maintain a significant presence on
each trading platform make
manipulation of ether prices through
continuous trading activity
challenging.23 The Exchange also states
that offering only in-kind creations and
redemptions ‘‘reduces the potential for
manipulation of the Shares through
manipulation of the Index or any of its
individual constituents, again
emphasizing that a potential
manipulator of the Shares would have
to manipulate the entirety of the ether
spot market, which is led by the [CME]
ether [f]utures market.’’ 24 Do
commenters agree with the Exchange’s
statements regarding the ether market’s
resistance to price manipulation?
6. The Exchange also states that it will
execute a surveillance-sharing
agreement with Coinbase, Inc.
(‘‘Coinbase’’) that is intended to
supplement the Exchange’s market
surveillance program.25 According to
the Exchange, the agreement is
‘‘expected to have the hallmarks of a
surveillance-sharing agreement between
two members of the [Intermarket
Surveillance Group], which would give
the Exchange supplemental access to
data regarding spot [ether] trades on
Coinbase where the Exchange
determines it is necessary as part of its
surveillance program for the
Commodity-Based Trust Shares.’’ 26
Based on the description of the
surveillance-sharing agreement as
provided by the Exchange, what are
commenters’ views of such an
agreement if finalized and executed? Do
commenters agree with the Exchange
that such an agreement with Coinbase
would be ‘‘helpful in detecting,
investigating, and deterring fraud and
market manipulation in the CommodityBased Trust Shares’’? 27
7. The Exchange states that the
‘‘Sponsor’s research indicates that daily
correlation between the [s]pot [ether]
and the CME [ether] [f]utures . . . was
over 99.88%.’’ 28 The Exchange further
states that this ‘‘high correlation’’ in
pricing between CME ether futures and
spot ether indicates that there is a
ddrumheller on DSK120RN23PROD with NOTICES1
23 See
commodity deposited with the trust; (b) that is
issued by such trust in a specified aggregate
minimum number in return for a deposit of a
quantity of the underlying commodity; and (c) that,
when aggregated in the same specified minimum
number, may be redeemed at a holder’s request by
such trust which will deliver to the redeeming
holder the quantity of the underlying commodity.
18 See Notice, 88 FR at 66521.
19 See id. at 66518.
20 See id. at 66522.
21 See id.
22 See id. at 66521 n.29.
VerDate Sep<11>2014
18:10 Dec 21, 2023
Jkt 262001
id.
id. at 66522.
25 See id.
26 See id. at 66522–23. The Exchange states that
‘‘[t]his means that the Exchange expects to receive
market data for orders and trades from Coinbase,
which it will utilize in surveillance of the trading
of Commodity-Based Trust Shares.’’ Id. at 66523.
27 See id. at 66522.
28 See id. at 66521. The Exchange states that this
is based on a pairwise correlation performed by the
Sponsor of ether daily returns across top centralized
spot cryptocurrency platforms and the CME from
March 19, 2021, to September 5, 2023. See id.
reasonable likelihood that a person
attempting to manipulate the Trust
would also have to trade on the CME
ether futures market.29 What are
commenters’ views on the correlation
between the ether spot market and the
CME ether futures market? What are
commenters’ views on the extent to
which a surveillance-sharing agreement
with the CME would assist in detecting
and deterring fraud and manipulation
that impacts an exchange-traded
product (‘‘ETP’’) that holds spot ether,
and on whether the Sponsor’s daily
return correlation analysis provides any
evidence to this effect? What are
commenters’ views generally on
whether an ETP that holds CME ether
futures and an ETP that holds spot ether
are similar products?
III. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the Act,
and the rules and regulations
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval that would be
facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4, any request for an
opportunity to make an oral
presentation.30
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
approved or disapproved by January 12,
2024. Any person who wishes to file a
rebuttal to any other person’s
submission must file that rebuttal by
January 26, 2024.
Comments may be submitted by any
of the following methods:
24 See
PO 00000
Frm 00128
Fmt 4703
Sfmt 4703
29 See
id. at 66522.
19(b)(2) of the Act, as amended by the
Securities Acts Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Acts Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
30 Section
E:\FR\FM\22DEN1.SGM
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Federal Register / Vol. 88, No. 245 / Friday, December 22, 2023 / Notices
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeBZX–2023–070 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
ddrumheller on DSK120RN23PROD with NOTICES1
All submissions should refer to file
number SR–CboeBZX–2023–070. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CboeBZX–2023–070 and should be
submitted on or before January 12, 2024.
Rebuttal comments should be submitted
by January 26, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–28193 Filed 12–21–23; 8:45 am]
BILLING CODE 8011–01–P
31 17
CFR 200.30–3(a)(57).
VerDate Sep<11>2014
18:10 Dec 21, 2023
Jkt 262001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99200; File No. SR–
NASDAQ–2023–035]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To List and
Trade Shares of the Hashdex Nasdaq
Ethereum ETF Under Nasdaq Rule
5711(i) (Trust Units)
December 18, 2023.
On September 20, 2023, The Nasdaq
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the
Hashdex Nasdaq Ethereum ETF
(‘‘Fund’’) under Nasdaq Rule 5711(i)
(Trust Units). The proposed rule change
was published for comment in the
Federal Register on October 3, 2023.3
On November 15, 2023, pursuant to
Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 This order
institutes proceedings under Section
19(b)(2)(B) of the Act 6 to determine
whether to approve or disapprove the
proposed rule change.
I. Summary of the Proposal
As described in more detail in the
Notice,7 the Exchange proposes to list
and trade the Shares of the Fund, a
series of the Tidal Commodities Trust I
(‘‘Trust’’), under Nasdaq Rule 5711(i),
which governs the listing and trading of
Trust Units on the Exchange.
The investment objective of the Fund
is to have the daily changes in the net
asset value (‘‘NAV’’) of the Shares
reflect the daily changes in the price of
the Nasdaq Ether Reference Price
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 98563
(Sept. 27, 2023), 88 FR 68214 (‘‘Notice’’). The
Commission has received no comments on the
proposal.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 98948,
88 FR 81156 (Nov. 21, 2023). The Commission
designated January 1, 2024, as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See Notice, supra note 3.
2 17
PO 00000
Frm 00129
Fmt 4703
Sfmt 4703
88687
(NQETH) (‘‘Benchmark’’), less expenses
from the Fund’s operations.8 The
Benchmark is designed to track the
price performance of ether.9 Under
normal market conditions, the Fund
will invest in ether, ether futures
contracts listed on the Chicago
Mercantile Exchange, Inc. (‘‘CME’’),10
and in cash and cash equivalents.11 The
Fund will use the CME’s Exchange for
Physical (‘‘EFP’’) transactions to acquire
and dispose of spot ether.12 The Fund
will be subject to investment restrictions
on spot ether which cap the Fund’s
exposure to the ether spot market to a
specified proportion of the Fund’s NAV
and restrict the Fund’s notional
exposure to ether to a set proportion.13
The sub-administrator of the Fund will
calculate the NAV of the Fund once
each trading day, as of the earlier of the
close of the Nasdaq or 4:00 p.m. New
York time.14 To determine the value of
Ether Futures Contracts, the Fund’s subadministrator will use the Ether Futures
Contract settlement price on the
exchange on which the contract is
traded, except that the fair value of
Ether Futures Contracts may be used
when Ether Futures Contracts close at
their price fluctuation limit for the day.
The value of spot ether held by the
Fund would be determined by the
Sponsor and by Hashdex Asset
Management Ltd. (‘‘Digital Asset
Adviser’’) in good faith based on a
methodology that is entirely derived
from the settlement prices of Ether
Futures Contracts on the CME and that
considers all available facts and all
available information on the valuation
8 See Notice, 88 FR at 68215. The Fund is
managed and controlled by Toroso Investments LLC
(‘‘Sponsor’’). See id. at 68214.
9 See id.
10 According to the Exchange, the CME currently
offers two ether futures contracts: one contract
representing 50 ether (‘‘ETH Contracts’’) and
another contract representing 0.10 ether (‘‘MET
Contracts,’’ and collectively, ‘‘Ether Futures
Contracts’’). See id. at 68214.
11 See id. at 68214. The Fund will hold a mix of
Ether Futures Contracts, spot ether, and cash and
cash equivalents, subject to certain investment
restrictions. See id. at 68219.
12 See id. at 68219. According to the Exchange,
EFP transactions are a type of private agreement
between two parties to trade a futures position for
the underlying asset. In an EFP transaction, two
parties exchange equivalent but offsetting positions
in an Ether Futures Contract and the underlying
physical ether. In the context of the Fund, these
transactions will be used to purchase and sell spot
ether by delivering or receiving the equivalent
futures position. See id. at 68229.
13 See id. at 68227–28.
14 See id. at 68231. The Fund’s NAV will include
any unrealized profit or loss on open ether futures
contacts and any other credit or debit accruing to
the Fund but unpaid or not received by the Fund.
See id.
E:\FR\FM\22DEN1.SGM
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]]>Agencies
[Federal Register Volume 88, Number 245 (Friday, December 22, 2023)]
[Notices]
[Pages 88685-88687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28193]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99196; File No. SR-CboeBZX-2023-070]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To List and Trade Shares of the ARK 21Shares
Ethereum ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
December 18, 2023.
On September 6, 2023, Cboe BZX Exchange, Inc. (``BZX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the ARK
21Shares Ethereum ETF (``Trust'') under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares. The proposed rule change was published
for comment in the Federal Register on September 27, 2023.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 98467 (Sept. 21,
2023), 88 FR 66515 (``Notice''). The Commission has received no
comments on the proposal.
---------------------------------------------------------------------------
On September 27, 2023, pursuant to Section 19(b)(2) of the Act,\4\
the Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ This order institutes proceedings under Section 19(b)(2)(B)
of the Act \6\ to determine whether to approve or disapprove the
proposed rule change.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 98565, 88 FR 68187
(Oct. 3, 2023). The Commission designated December 26, 2023, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
I. Summary of the Proposal
As described in more detail in the Notice,\7\ the Exchange proposes
to list and trade the Shares of the Trust under BZX Rule 14.11(e)(4),
which governs the listing and trading of Commodity-Based Trust Shares
on the Exchange.
---------------------------------------------------------------------------
\7\ See Notice, supra note 3.
---------------------------------------------------------------------------
The investment objective of the Trust will be to seek to track the
performance of ether, as measured by the performance of the CME CF
Ether-Dollar Reference Rate--New York Variant (``Index''), adjusted for
the Trust's expenses and other liabilities.\8\ The Trust's assets will
consist of ether held by the Trust's custodian on behalf of the
Trust.\9\ The Trust will value its Shares daily based on the value of
ether as reflected by the Index.\10\ The administrator of the Trust
will determine the net asset value (``NAV'') of the Trust on each day
that the Exchange is open for regular trading, as promptly as
practicable after 4:00 p.m. ET.\11\ In determining the Trust's NAV, the
administrator values the ether held by the Trust based on the price set
by the Index as of 4:00 p.m. ET.\12\ When the Trust sells or redeems
its Shares, it will do so in ``in-kind'' transactions with authorized
participants in blocks of 5,000 Shares.\13\
---------------------------------------------------------------------------
\8\ See id. at 66518. 21Shares US LLC (``Sponsor'') is the
sponsor of the Trust. See id. at 66515.
\9\ See id. at 66515. The Trust generally does not intend to
hold cash or cash equivalents; however, there may be situations
where the Trust would unexpectedly hold cash on a temporary basis.
See id. at 66515-16.
\10\ See id. at 66518.
\11\ See id. at 66519.
\12\ See id.
\13\ See id. at 66516.
---------------------------------------------------------------------------
II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2023-070 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \14\ to determine whether the proposed rule
change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposed rule change, as discussed below. Institution of
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, as
described below, the Commission seeks and encourages interested persons
to provide comments on the proposed rule change.
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\14\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\15\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act, which requires, among other things, that the rules of a
national securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices'' and ``to protect investors and the
public interest.'' \16\
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\15\ Id.
\16\ 15 U.S.C. 78f(b)(5).
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The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Notice, in addition to any other comments they may wish to
submit about the proposed rule change. In particular, the Commission
seeks comment on the following questions and asks commenters to submit
data where appropriate to support their views:
1. Given the nature of the underlying assets held by the Trust, has
the Exchange properly filed its proposal to list and trade the Shares
under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares? \17\
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\17\ BZX Rule 14.11(e)(4)(C)(i) defines the term ``Commodity-
Based Trust Shares'' as a security (a) that is issued by a trust
that holds a specified commodity deposited with the trust; (b) that
is issued by such trust in a specified aggregate minimum number in
return for a deposit of a quantity of the underlying commodity; and
(c) that, when aggregated in the same specified minimum number, may
be redeemed at a holder's request by such trust which will deliver
to the redeeming holder the quantity of the underlying commodity.
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[[Page 88686]]
2. The Exchange raises substantially similar arguments to support
the listing and trading of the Shares as those made in proposals to
list and trade spot bitcoin exchange-traded products (``Bitcoin
ETPs''). Do commenters agree that arguments to support the listing of
Bitcoin ETPs apply equally to the Shares? Are there particular features
related to ether and its ecosystem, including its proof of stake
consensus mechanism and concentration of control or influence by a few
individuals or entities, that raise unique concerns about ether's
susceptibility to fraud and manipulation?
3. What are commenters' views on whether the proposed Trust and
Shares would be susceptible to manipulation? What are commenters' views
generally on whether the Exchange's proposal is designed to prevent
fraudulent and manipulative acts and practices? What are commenters'
views generally with respect to the liquidity and transparency of the
ether markets and the ether markets' susceptibility to manipulation?
4. Based on data and analysis provided by the Exchange,\18\ do
commenters agree with the Exchange that the Chicago Mercantile Exchange
(``CME''), on which CME ether futures trade, represents a regulated
market of significant size related to spot ether? \19\ What are
commenters' views on whether there is a reasonable likelihood that a
person attempting to manipulate the Shares would also have to trade on
the CME to manipulate the Shares? \20\ Do commenters agree with the
Exchange that trading in the Shares would not be the predominant
influence on prices in the CME ether futures market? \21\
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\18\ See Notice, 88 FR at 66521.
\19\ See id. at 66518.
\20\ See id. at 66522.
\21\ See id.
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5. The Exchange states that ether is resistant to price
manipulation and that other means to prevent fraudulent and
manipulative acts and practices ``exist to justify dispensing with the
requisite surveillance sharing agreement'' with a regulated market of
significant size related to spot ether.\22\ In support, the Exchange
states, among other things, that the geographically diverse and
continuous nature of ether trading make it difficult and prohibitively
costly to manipulate the price of ether, and that the fragmentation
across ether platforms, the relatively slow speed of transactions, and
the capital necessary to maintain a significant presence on each
trading platform make manipulation of ether prices through continuous
trading activity challenging.\23\ The Exchange also states that
offering only in-kind creations and redemptions ``reduces the potential
for manipulation of the Shares through manipulation of the Index or any
of its individual constituents, again emphasizing that a potential
manipulator of the Shares would have to manipulate the entirety of the
ether spot market, which is led by the [CME] ether [f]utures market.''
\24\ Do commenters agree with the Exchange's statements regarding the
ether market's resistance to price manipulation?
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\22\ See id. at 66521 n.29.
\23\ See id.
\24\ See id. at 66522.
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6. The Exchange also states that it will execute a surveillance-
sharing agreement with Coinbase, Inc. (``Coinbase'') that is intended
to supplement the Exchange's market surveillance program.\25\ According
to the Exchange, the agreement is ``expected to have the hallmarks of a
surveillance-sharing agreement between two members of the [Intermarket
Surveillance Group], which would give the Exchange supplemental access
to data regarding spot [ether] trades on Coinbase where the Exchange
determines it is necessary as part of its surveillance program for the
Commodity-Based Trust Shares.'' \26\ Based on the description of the
surveillance-sharing agreement as provided by the Exchange, what are
commenters' views of such an agreement if finalized and executed? Do
commenters agree with the Exchange that such an agreement with Coinbase
would be ``helpful in detecting, investigating, and deterring fraud and
market manipulation in the Commodity-Based Trust Shares''? \27\
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\25\ See id.
\26\ See id. at 66522-23. The Exchange states that ``[t]his
means that the Exchange expects to receive market data for orders
and trades from Coinbase, which it will utilize in surveillance of
the trading of Commodity-Based Trust Shares.'' Id. at 66523.
\27\ See id. at 66522.
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7. The Exchange states that the ``Sponsor's research indicates that
daily correlation between the [s]pot [ether] and the CME [ether]
[f]utures . . . was over 99.88%.'' \28\ The Exchange further states
that this ``high correlation'' in pricing between CME ether futures and
spot ether indicates that there is a reasonable likelihood that a
person attempting to manipulate the Trust would also have to trade on
the CME ether futures market.\29\ What are commenters' views on the
correlation between the ether spot market and the CME ether futures
market? What are commenters' views on the extent to which a
surveillance-sharing agreement with the CME would assist in detecting
and deterring fraud and manipulation that impacts an exchange-traded
product (``ETP'') that holds spot ether, and on whether the Sponsor's
daily return correlation analysis provides any evidence to this effect?
What are commenters' views generally on whether an ETP that holds CME
ether futures and an ETP that holds spot ether are similar products?
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\28\ See id. at 66521. The Exchange states that this is based on
a pairwise correlation performed by the Sponsor of ether daily
returns across top centralized spot cryptocurrency platforms and the
CME from March 19, 2021, to September 5, 2023. See id.
\29\ See id. at 66522.
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III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Act, and
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\30\
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\30\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by January 12, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
January 26, 2024.
Comments may be submitted by any of the following methods:
[[Page 88687]]
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBZX-2023-070 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2023-070. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2023-070 and should
be submitted on or before January 12, 2024. Rebuttal comments should be
submitted by January 26, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-28193 Filed 12-21-23; 8:45 am]
BILLING CODE 8011-01-P
